SKS Shares Continue To Slide Amidst New, Strict Regulation

Shares of SKS Microfinance, India's largest microfinance institute, continued to tank as the confusion continued on new, more strict regulation on the industry.

Shares have dipped 22% from a high of Rs 1,404.85 last month to the current Rs 1,108.35. The current downward spiral was triggered by a Special Ordinance to rein in microfinance institutions that was approved late last week by the government of Andhra Pradesh. This requires all microfinance institutions to register with the state government; it says that total interest payments charged by the MFIs can't exceed the amount of the loan; it bans taking security for loans; and imposes penalties of up to three years in jail and Rs 100,000 for coercing borrowers.

The new regulation came on the basis of the news that 30 people in Andhra Pradesh had committed suicide in 45 days because of the coercive methods of MFIs, the Economics Times reported. SKS didn't respond to queries. The shares have continued to tank since the company sacked its CEO earlier this month.

SKS is the second listed company of two pure play MFIs (the other is Mexico's CompartamosBanco). As microlending explodes in India and other parts of the world, there is a deepening rift in that sector on what is the best approach to balance the need of hundreds of millions with the opportunities offered by capital markets. Recently SKS founder Vikram Akula (which also has billionaire Vinod Khosla and Sequoia Capital as investors), got into this very debate with his one time idol, Muhammad Yunus, the Nobel Prize founder of Grameen Bank and the father of microfinance. The former listed his company, the latter didn't.